Current Account Deficit, Causes & Consequences

Current Account is the sum of the balance of trade (exports minus imports of goods and services), net factor income (such as interest and dividends) and net transfer payments (such as foreign aid) or we could also said when a country’s government, businesses and individuals imports more goods, services and capital than it exports to other countries. Current Account in India is reported by the Reserve Bank of India.India recorded a Current Account deficit of 18.10 USD Billion in the first quarter of 2013.

Causes of a Current Account Deficit

Trade deficit: It means the country imports more goods and services than it exports.

Net income: This occurs when the country exports dividends on stocks, interest payments made on financial assets, and wages paid to foreigners working in the country. Deficit will rise if all payments made to foreigners are greater than the interest, dividends and wages made by foreigners to the country’s residents.

Direct transfers: It includes government grants to foreigners. It also includes any money sent back to their home countries by foreigners